Even after Wednesday’s furious rebound in US stocks, the chances that the S&P 500 Index will end the year with a gain remain slim, if history is any guide.
In the 16 times the US stock benchmark has dropped 15% or more at any point in a year, like it had before the rally, the S&P 500 has only recovered to end the 12-month period positive on three occasions, according to data compiled by Ryan Detrick at Carson Group LLC.
Those instances — 2020, 2009, 1982 — occurred in times when the Federal Reserve moved to support the economy, and the central bank has given no signal that it’s about to take such a step any time soon as White House trade policies threaten to reignite inflation.
The S&P 500 soared almost 10% on Wednesday, a reprieve from the worst four-day rout in US equities since March 2020’s pandemic crash, as President Donald Trump paused higher reciprocal tariffs against most global peers for 90 days.
“This year is different than those other three we’ve had big stock-market comebacks because the Fed probably isn’t going to come to the rescue this time, since they’re still very worried about inflation,” Detrick said. “That puts them in a hard spot right now.”
Fed Chair Jerome Powell insisted last week that the US central bank is in no hurry to step in despite the turmoil across financial markets from Trump’s trade salvos. With such sweeping levies poised to stoke cost pressures in addition to stalling economic growth, the Fed is reluctant to ease monetary policy to help support markets until there is further clarity on tariffs.
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That’s in stark contrast to 2020, when the Fed slashed rates to zero, among measures it took to support the economy as it was hammered by a global pandemic. US stocks reached a year-to-date low of 31% as the virus sent markets careening but ultimately ended 2020 up 16%.
In 2009, the S&P 500’s year-to-date losses reached 25% before the benchmark ended with a nearly 24% advance. This came after policymakers cut borrowing costs to near zero through 2008 as part of efforts to end the recession. Then back in 1982 — when the US stock gauge ended that year up 15% — the Paul Volcker-led Fed continued its rate reductions from 1981.
Skeptical Street
Today, even as stocks stage a recovery, Wall Street remains skeptical of any sustainable rally. They are bracing for ongoing tariff announcements to cast more uncertainty for US businesses and consumers that could lead to stagflation or a full-blown recession.
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“On the economic front, a lot of damage has been done, and I suspect that we’re going to get some hard data that follows suit,” said Kathryn Rooney Vera, chief market strategist at StoneX Group Inc.
The latest read on consumer prices is due on Thursday and expectations are for inflation to remain stubbornly high. With signs of the economy weakening and corporate earnings forecasts likely to be revised lower this reporting season, equity valuations have further room to fall if rates remain at their current elevated levels, according to Matt Maley at Miller + Tabak & Co., LLC.
“When you combine this with the more aggressive tariffs, it’s going to be hard for the market to bounce back in a significant way without some meaningful help from the Fed,” Maley said.
